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May 9, 2014

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May 9, 2014

Reformers v lobbyists: where have we got to on tackling corporate tax dodging?

May 9, 2014
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The rhythm of NGO advocacy and campaigning sometimes makes it particularly hard to work on complicated issues, involving drawn-out negotiations where bad guys have more resources and staying power than we do. Campaigns on trade, climate change, debt relief etc often follow a similar trajectory – a big NGO splash as a new issue breaks, then activists realize they need to go back to school (I remember getting briefings on bond contracts during the 1998 Asia financial crisis) or employ new kinds of specialists who can talk the new talk. And then for a while we get geeky, entering into the detail of international negotiations, debating with lobbyists and academics. When it works (as in the debt campaign), we contribute to remarkable victories or to stopping bad stuff happening (which I would argue was a big civil society contribution at the WTO).

But citizen activism has always been characterized by spikes of activity, rather than the steady, long term grind of states and business lobbyists. As an policy funnelissue moves down the policy funnel (see pic), the technical content gets greater, and the chance to mobilize the public declines. It becomes harder for NGOs to maintain commitment with new issues appearing, and all the other competing priorities. Sometimes we spin off smaller specialist organizations who can dig in for the long term (like the Bretton Woods Project); at other times we just let things slip.

I thought of this when reading an excellent new Oxfam paper on corporate tax dodging, by Claire Godfrey. It’s both a handy, non-technical overview of how tax dodging affects poor countries, and a laudable effort to keep up the pressure for reform as the memories of the global financial crisis fade, and the lobbyists mobilise to try and stop the OECD and G20 from turning post-crisis promises into something more concrete.

First the issue:

‘The OECD has found that multi-national corporations pay as little as 5 percent in corporate tax, while small companies pay as much as 30 percent. This tax-dodgerssituation can mostly be explained by two phenomena: multinational business shifting profits or otherwise structuring cross-border transactions to avoid their tax liabilities; and companies securing tax incentives from governments bidding to attract foreign investment. The tax gap for developing countries – the amount of unpaid tax liability faced by companies – is estimated at $104bn every year (including profits shifted in and out of tax havens). Governments in these countries then give away an estimated $138bn each year in statutory corporate income tax exemptions.’

Now the response:

‘The ‘Action Plan on Base Erosion and Profit Shifting’ (BEPS) proposed by the OECD and approved by the G20 seeks to redefine international tax rules to curb profit shifting activity [by companies], and ensure they pay taxes where the economic activity takes place and value is created. The action plan should be ready for implementation by the end of 2015.

However, there are several reasons why this process, in its current state, will not deliver an outcome that leads to more progressive tax systems worldwide where multinational companies pay their fair share of tax or do so where the value is generated.

Firstly, the business lobby currently has a disproportionate influence on the process, which it uses to protect its interests. Correcting the rules that allow the tax dodging practices of global giants like Google, Starbucks and others that lead to tax revenue losses in OECD countries will be difficult, given the size of the corporate lobby. But worse, perhaps, is that the interests of non-OECD/G20 countries are not represented at all in these negotiations.’

tax protestThe paper highlights the skewed nature of policy formulation – when the OECD ran a public consultation on its draft rules to curb tax abuses, ‘almost 87 percent of the contributions have come from the business sector, none from developing countries’ tax authorities, and the remaining 13 percent include contributions from NGOs (eight, including Oxfam), academics (seven), experts related to tax administrations (two) and one trade union. More striking, of 135 contributions in total, 130 come from rich countries.’

The paper concludes that the only way to avoid the lobbyists and the race to the bottom between governments is to create a World Tax Authority, (something Vito Tanzi, former Director of the Fiscal Affairs Department at the IMF, proposed after the Asia Crisis). NGOs are always calling for new international bodies to be set up, but it feels like the case for this one is unusually strong, and the political economy arguments for governments might be persuasive (if they can just shake off the malign influence of the financial lobbyists) – in the end, all governments (as well as their citizens, of course) lose out from a race to the bottom on tax.


  1. It will be a brave campaigner who tries to sell the need for a “World Tax Authority” to the British media at the moment (as they seem to be getting more isolationist).

    If this succeeds – and I hope it does – the people behind the campaign will deserve several Nobel prizes!

  2. Thanks Pete. Important to get the concept of a global body (WTA) – a multilateral approach – into the global public debate on international tax issues. Let’s see how far it flies?!

  3. Duncan,

    In your original edition of this post you framed the problem by quoting the Oxfam report that “The OECD finds that on average, MNCs pay 5 percent in corporate tax, while small companies pay around 30 percent”. This was a correct quote from Claire Godfrey’s report, but is a misunderstanding or misrepresentation of what the OECD says in the press release cited (which itself is a poor reflection of what the BEPS report actually says).

    You have since edited your post so the statement reflects the original OECD presser (“some multinationals use strategies that allow them to pay as little as 5% in corporate taxes when smaller businesses are paying up to 30%”) – but it now no longer accurately reflects the Oxfam report you are quoting from!

    This is more than quietly correcting a typo, and bears talking about.

    As you say, for campaigns to get beyond the ‘big splash’ stage to influencing public policies (hopefully towards better outcomes), a geeky analysis stage is needed. The OECD press release is not much help here, but Annex B of the BEPs report gives a summary of the research to date (by both academics and NGOs). The kinds of figures it finds for MNC effective tax rates in the US and EU are 23%, 18%, 34% and 16% (different groups of companies, different methodologies, but nothing like 5%!). It winds up saying that “it is difficult to reach solid conclusions about how much BEPS actually occurs” and that there is even less data for developing countries. This conclusion is unsatisfying, but replacing it with sexed-up figures is not good enough!

    It is worrying when such shaky (but attractive) figures are used used as the basis for policy proposals, both within NGOs, and in broader public debate.

    This is a wider pattern in the tax debates, which goes beyond Oxfam. The potent ‘big numbers’ which supported the first stage of awareness raising don’t stand up to the needed second stage of serious analysis, and are preventing the issue maturing in the public debate (I’ve written about it before…

    Is there a process for correcting the report? Could a wider group of reviewers be drawn together for future reports and ongoing debates to try to overcome the campaigning ‘valley of death’ between public outrage and effective policy change?

    1. Hi Maya, thanks for pointing out the mistake. My understanding is that the authors are in the process of correcting it in the main paper.

      1. Glad to hear it!

        They should also re-look at the way that Oxfam is interpreting the $104 billion Action Aid estimate of the developing country tax gap (
        as the “amount of tax liability not paid by multinationals to developing countries”. ActionAid’s methodology for this estimate ( – footnote 44) is 20% x corporation tax currently collected (using USAID’s Collecting Taxes database). This includes taxes on incorporated small, medium and large domestic enterprises. USAID’s database does not divide revenues by company type, so ascribing this estimate to multinationals alone is embroidery (and collapses understanding of an issue that relates to developing country government capacity and accountability to citizens into a story that is ‘about us’).

        Also, on page 6, it should be noted that the 38.4 billion estimate of capital flight from Africa (which is drawn from the work of Global Financial Integrity) relates to the process of fraudulent reinvoicing, not transfer pricing within multinational corporations (and is not a measure of tax revenue loss).

        Data is scarce on these issues and the numbers are hard enough to interpret as it is. I agree with you that the issue should not be left to the corporate lobbyists to tie up, but that depends on NGOs raising their game on presenting robust analysis, which doesn’t fall back on ‘bad-guys’ short-hand.

  4. As a tax professional who used to work in a development NGO can I echo Maya’s comments about the second stage “geeky” analysis (which she had identified before). I believe if Oxfam is to be taken seriously in these issues it must engage with such work. Only through forging such coalitions can there be that wider voice to speak in international discussions, whose lack she is concerned about. It might help tax campaigners understand more of the “geeky things, such as things like CBCR are not necessarily criticised because of an allegiance to ‘big business’ but because there are actually some real practical and theoretical issues to resolve. (For example, if tax administrations can be trusted to ensure tax compliance, what more tax is generated by CBCR? So is the real issue that trust?)
    It may be tempting to write things like “Although such practices are highly questionable from an ethical standpoint, they are often not illegal. But quibbling over their legality misses the point.” I think there are so many practical issues that are bundled up in this statement that it runs the risk of being dismissed as pure rhetoric. To dismiss legality as “quibbling” runs the risk of alienating tax professionals and lawyers who are probably very sympathetic to to the idea of a different set of rules. And the rest of the paper goes against that statement because it specifically discusses what rules need to be changed.
    I’d agree with a lot of the paper but to take it further then we need that additional level of consultation and engagement. Maybe start with May’s suggestion?

  5. A correction to “whose lack she is concerned about”.
    It is Clare, not Maya, who expressed concern on the responses to the CBCR consultation. Sorry for any misleading and also for misspelling Maya’s name at the end.

  6. Thanks Maya for putting us straight (and Iain). We’ve corrected the paper and put a footnote to that effect to avoid any confusion. One of the great things about the web is getting this kind of crowdsourced support to improve our papers.

    While it is important to be bold and popular – geeks alone will never get things onto the political agenda, but it is also important to be as accurate as possible, despite lamentable gaps in the data.

    Look forward to working with you both in the future

  7. Hi Claire,

    Thanks for sending me the link to the updated report (

    You have corrected the ‘killer fact’ to “MNCs pay as little as 5 percent in corporate tax, while small companies pay as much as 30 percent” which now reflects the quote from OECD press release.

    The problem is, it is meaningless as it compares the bottom of one range with the top of another… (‘my grandfather smoked like a chimney all his life and he lived longer than some non-smokers’) .. We don’t like it when politicians or advertisers abuse statistics like this, and we shouldn’t do it ourselves!

    I am not just saying this to be annoying and picky. The paper lays out policy proposals based on this analysis – with a clear logic line: 1) The OECD finds that MNCs pay massively lower tax rates than SMEs 2) Because BEPs & tax exemptions 3) Developing countries are worst hit 4) Developing countries do not have enough of a say in the OECD BEPs process 5) Therefore World Tax Authority (etc..) to solve this problem.

    If the underlying evidence is wrong (or based on ‘everybody knows’ assumptions) then this logic line may end up in the wrong place. There are hard choices to be made between different policy priorities e.g.: between strengthening overall tax administrations, focusing resources on transfer pricing, setting up a World Tax Authority, getting country-by-country reporting working for extractives, expanding it to all etc.. I don’t know what the ‘right’ answer is, but I think the evidence should be taken seriously in considering it!

  8. Well done Maya for picking up the slip, and kudos to Claire and Oxfam, for making the correction.

    I think I’d substitute points (1)-(5) in Maya’s last comment with something like this:
    (1) The OECD finds systematic evidence of BEPS by MNEs, e.g.
    (2) Growing evidence, including forthcoming work from the IMF, confirms a broad pattern of greater misalignment (that is, profit share lower than share of economic activity) in lower-income countries.
    (3) Developing countries’ voice in BEPS is quiet
    (4) The risks of the OECD process failing developing countries are therefore clear, and policy measures to address this should be explored.

  9. Hi Alex, your points 1-2-3-4 are reasonable, and the conclusion for policy measures to ensure that developing countries don’t lose out in the BEPs process is fair enough.

    I wonder though where the chain or reasoning would end up if it started with a different question: i.e.: one that didn’t have an a priori focus on MNCs, but started from a question about the priorities for stronger revenue collection and economic growth in least developed countries. I suspect it would get to a conclusion where BEPs is not quite so front-and-centre, and other areas such strengthening extractive industry concessioning and domestic tax systems more broadly might be seen as more important and urgent.
    The way the debate is currently framed in terms of ‘bad guys’ and unfairness, has attracted attention, but precludes asking this question, and instead assumes that the concerns that get people spluttering into their cappuccino in London are the same as the priorities for the poorest developing countries.
    It leads to a debate which breaks down (unhelpfully in my opinion) into ‘tax justice campaigners’ vs ‘defenders of tax avoidance’, with little room for NGOs to engage robustly in the technical and economic analysis needed to get the issue effectively down the policy funnel (or for tax experts and businesses to be seen as anything other than lobbyists for tax avoidance).

    I didn’t pick up the slip just to be an editorial stickler (or on behalf of the forces-of-evil) but because I think this debate now needs to be more robust than the outrage-quotes and good guys/bad guys narrative will allow.

    When we are urged to boycott Amazon (global effective tax rate last year 31.8% ( or told that 90% of the subsidiaries of FTSE 100 companies are in secrecy jurisdictions (* I can’t help but think that the lure of a good story is getting in the way of helping people to understand a serious and complex subject.

    (* – by Christian Aid – this counts all subsidiaries in the USA, UK, Netherlands, Germany, Canada, France, Brazil, India, South Africa, Australia as being in secrecy jurisdictions. No countries are identified as not being secrecy jurisdictions!)

  10. Maya, many others are more qualified to give their views on the balance NGOs aim for between persuasion and education (in fact, I bet Duncan has a blog post or seven on the subject); but I might add one thing, which is that none of us are immune to the temptation to focus on the point that serves our argument best.

    Just to give an example: in your reference to Christian Aid above, you refer to being “told that 90% of the subsidiaries of FTSE 100 companies are in secrecy jurisdictions”, and link to CA’s new report.

    The stat first appears in the third section of that report, as “today’s FTSE 100 have a total of 29,891 subsidiaries, more than 90% of which are located in places defined in the FSI as secrecy jurisdictions”. Now we could argue about whether this is the correct interpretation of the FSI*, but I’m sure you’d agree that, either way, that reliance on definition from the FSI is an important qualifier to the claim that you highlight.

    Perhaps it would be fairer to look at what Christian Aid highlight as conclusions. From the executive summary of the report you link to, in which no mention is made of the 90% stat, we see instead this:

    “The following are some of the most salient findings:
    • 14% of the FTSE 100 subsidiaries outside the UK are based in highly secretive jurisdictions. All sectors of the FTSE 100 companies have
    subsidiaries in such places.
    • Investment and finance (37%), banks (28%) and mining (19%) have the highest percentage of subsidiaries in highly secretive jurisdictions.”

    And so on. So Christian Aid are actually rather careful to focus their analysis and main findings (where it relates to secrecy jurisdictions) on those with a secrecy score of more than 65 out of 100 – defined as ‘highly secretive’. Off the top of my head, I think all the countries you mention have scores below 60 and most are 40-50 instead, so wouldn’t be close to being included here.

    I don’t mean to have a go; I just mean to illustrate that when we’re making a case for something (including in situations where we recognise there is nuance and complexity to be considered), the tendency is nonetheless to emphasise material that makes the case most powerfully, rather than to set out the full case for and against in all its nuance.

    Saul Alinsky has a line to the effect that once a leader is convinced of the case for doing X, even if they weighed the evidence as just 51:49 in favour, they have to go out and fight for X as if the evidence was 100:0. I’m not sure this is a great way to live your life, but it surely makes sense for a certain category of advocacy.

    Should we expect NGOs to invest more in educating audiences on the nuance of a question, at the risk of failing to get attention or support for something they are genuinely convinced of? I’m not sure. Should we expect others to stop being annoyed, or highlighting it, when NGOs get it wrong? Absolutely not.

    * Are all jurisdictions included in the FSI ‘secrecy jurisdictions’? To the extent that none are 100% transparent and all are ranked by secrecy, then yes, but then the category means something even more removed from the traditional ‘tax haven’. Just for background, the aim is to broaden the coverage even further, and it is of course already well beyond the usual suspects.

  11. Thanks to both Maya and Alex for their thoughts, which seem to run in parallel directions, even if not overlapping.
    I’m not sure that responses to any paper have to be couched in terms of having a core alternative proposition, or some sort of counter argument. I think there’s room for both actions, so a paper can say the sort of things both Alex and Maya describe. I don’t think it has to be all BEPS or all internally focussed.
    As a campaigner I think there is also more than persuasion and education; you need to support your activists and reinforce your core supporters. In that context it may be much harder to look at education. But if a campaign is to expand its support then it has to start from where people currently are and move their views. That is surely the context in which this discussion should be framed. And it can be the case you need differentiated campaigns, targeted at different audiences.
    If NGOs, or the OECD, want change then they have to set out the case in such a way as to persuade people who currently do not agree with them or their policies. As a tax professional I may be part of only a small potential audience but I think it may be quite influential in this particular part of Oxfam’s work. Recognising that some of the issues are complex, and possible remedies not clear cut or without difficulty, would be part of a process that moved such professionals from being potential supporters (as I think many are) into more active ones.
    I think we would all benefit from moving away from some Manichean view of the world, where if you’re not deemed part of the solution then you’re part of the problem. Maybe both NGOs and tax professionals (not “sides”) can get together more?

  12. Hi Alex

    I didn’t comb through the report looking for a dodgy statistic to pick at! It was the one that popped up in my Twitter feed when the report was launched….. in the battle for the ‘fittest meme’ 90% beats 14% as the salient number.

    NGOs are increasingly having to compete for attention with insta-campaigns like #bringbackourgirls and #stopkony which pack a simple emotional punch, but offer no real understanding of issues. The tension between the need to grapple with complex, technical issues, and the desire for simple, emotionally satisfying answers is only going to grow.

    I think to justify their reputation, overhead, and the trust we place in them, NGOs have to find a way to win with evidence-based-advocacy, and not give in to the temptation for advocacy-based-evidence.

    Yes I do to think it’s part of NGOs role to educate (….agitate, educate and organise!) – both internally, amongst experts, and more broadly. If not NGOs who else will? If people and organisations aren’t able to extract meaningful conclusions from data, how can more information and transparency help us get to better policies and results?

    The alternative is the “trust us” model where intermediaries, whether NGOs, the media, marketers or politicians ask the public not to look to closely at the underlying analysis but just trust that ‘the grown ups’ know what they are doing and to pick a side and support it.

    I think this is dangerous, not only because it allows bad analysis to stand, but because the picking-and-defending of sides (as Iain said) prevents people from different quarters bringing together their expertise & influence to make progress on hard problems.

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